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Interview: Screen Digest On Subscription MMO Growth, Blizzard's Next
by Simon Carless
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April 2, 2009
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In an overview of a newly released study, UK-based analyst firm Screen Digest presented a view of the subscription-based MMO market in the West.
According to their estimates, which did not try to estimate the microtransaction-based online game market, the subscription MMO sector, led by Blizzard's World Of Warcraft, grew by 22% in 2008 and reached consumer spending levels of $1.4 billion in North America and Europe.
With a 58% share of Western consumer spending on subscription MMOGs and over $2.2 billion in cumulative spending on subscriptions since the beginning of 2005, World of Warcraft remains dominant in the market, estimates the survey.
However, growth in consumer spending on other subscription titles was "robust" during 2008 at 27%, confirming continuing adoption of the business model across other games and services as well.
These results "are encouraging for the future of subscriptions in MMOGs, and show a marked improvement on 2007 where growth in ex-WoW consumer spending was just 12%."
By 2013, Screen Digest expects the subscription market to top $2 billion in consumer spending, holding its own alongside micro-transactions, due to "consumer acceptance of predictable subscription payments and the innovative use of premium subscription business models."
Other drivers include the continued introduction of more mainstream games services, broadband internet adoption and the overall development of the European market. Following the announcement, Gamasutra sat down with Piers Harding-Rolls, Senior Analyst for Games at Screen Digest, to discuss the results and their ramifications for the online game market.
You say that subscription MMO revenue growth will still be reasonably significant – why is that, if microtransaction-based MMOs are also on the rise? Aren’t microtransactions cannibalizing that market?
You are right, it is inevitable that there will be some cannibalisation of the subscription opportunity by micro-transaction based games and specifically in two ways.
Firstly, game operators that deploy micro-transactions in their games today may have used subscriptions in the past, thus reducing the overall subscription opportunity. Secondly, micro-transaction based games are competing against subscription games for the entertainment dollar.
But there is also much in the argument that states that micro-transaction based spending is often incremental to the subscription market. While the subscription market has remained highly competitive, the introduction of new business models has allowed operators to introduce new content genres to the market and to target new gamer demographics beyond the traditional fantasy RPG space. So while micro-transaction revenue is growing strongly, our research shows that consumer spending on subscriptions is also growing at a solid pace.
There are also other reasons why subscriptions are holding their own against the other business models. First, some content is undoutedly better suited to a monthly set-fee model rather than micro-transactions, and developers continue to produce that content for the Western markets.
Secondly, many MMO gamers in North America and Europe accept and like the idea of monthly subscriptions and the type of gameplay that model involves. Conversely, many of these gamers don't like the idea of micro-transactions and sale of virtual currency/items.
Thirdly, consumers in the West are used to paying for all sorts of services in the form of subscriptions and, importantly, the payment mechanisms and infrastructure exists for regular subscription payments to be made. This has been helped by the introduction of other payment methods such as pre-paid cards and SMS payments for subscriptions.
Lastly, game publishers and operators have been forced to innovate in recent years to compete. This has resulted in the introduction of new subscription models such as premium subscriptions, which have been really successful in recent years. Indeed, number 2 and 3 in the market in 2008 ranked by consumer spending were both premium subscription titles: Club Penguin and RuneScape.
It's also worth mentioning that we believe that low-cost subscription based services are relatively well placed to weather the recession compared to ad-hoc purchasing-based models. While micro-transactions allow gamers to spend unlimited amounts, when people are watching their outgoings the idea of a set monthly fee for a service is likely to be attractive (especially to parents!).
Do you think the subscription-based MMO field is about right, slightly oversubscribed or grossly oversubscribed when it comes to launches over the next couple of years? Which titles will particularly break through?
While the market is growing, the subscription MMOG market also remains high-risk and very competitive it's true. As we know providing a successful MMOG service involves a number of business processes that must all work well together - if one process falls down this can undermine the whole service.
Unfortunately it is likely that there will be a number of future services that commercially fail - this has been the situation for a good number of years.
World of Warcraft's dominance exacerbates the competitive situation - but if you take that game out of the equation, growth in consumer spending on other subscription titles was around 30 per cent in 2008, which suggests that there remains a growing opportunity to address for new games. Also, the 2008 results suggest that WoW's subscription numbers are slowing in growth in mature Western markets.
I think some of the most interesting titles to hit the market this year include Free Realms from SOE, which will utilize a mixed model approach including premium subscriptions and represents the first multi-platform (PC and PS3) MMOG built specifically for this generation of games consoles. I'm also personally excited about All Points Bulletin from Real Time Worlds because I believe it's going to bring something new to the genre.
How can external analysts calculate micro-transaction-based revenues for MMOs when average revenue per user seems to differ so majorly from game to game?
First off, I wanted to clarify that our latest report covers subscription MMOGs only. Having said that we have done work in sizing the micro-transaction-based market and use the same methodology as we do for sizing the subscription market: we use a comprehensive bottom-up approach which includes collating and listing every title available on the market.
We then use our extensive contacts to speak to as many operators and publishers as possible to build an accurate picture of the market opportunity.
Why aren’t more titles going for the kind of ‘slow burn’ subscriber approach that games like EVE have successfully practiced?
The 'slow burn' you describe is hard to replicate and I believe commonly occurs to games based on new intellectual property or from companies that have no track record in the industry.
I'm sure CCP Games' next title will be highly anticipated negating the opportunity to go for a 'slow burn' approach. For EVE Online, the slow and steady acumulation of subscribers has been delivered through positive word of mouth recommendations from the gaming community generated by CCP Games delivering fantastic content and service.
It has also been controlled to an extent by the release of new content and indeed by the type of game experience itself. You're right this growth pattern can be an advantage to operators - starting small and building a well established community, which creates a strong base to build a future service upon.
But it is hard to replicate and the financial pressure on MMOG operators means that they aim to generate a return on their investment as soon as possible rather than take the 'slow burn' route.
Does your modeling take into account any additional Blizzard MMOs launching before 2013?
Our model does take into account release volume and what sort of games are hitting the market. As for the next MMOG from Blizzard - obviously at the moment it is unconfirmed, but I will say two things.
It is likely that a new Blizzard title will attract many gamers that play WoW now, so in many respects it will involve a transitioning of the playerbase from WoW to the new title (in my opinion the transition represents Blizzard's biggest challenge). So although it may prompt new gamers to get into the MMOG market, a lot of users will be MMO gamers already.
Also, with regards to launch timing, 2008 saw WoW subscriber growth slow, suggesting a plateauing of subscriptions in mature markets could be with us quite soon. This would suggest a pre-2013 launch data for the next Blizzard MMOG to be a realistic possibility.
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2004-11-23: 0 (launch date)
2005-03-17: 1.5 million - http://www.gamasutra.com/php-bin/news_index.php?story=5145
2005-06-15: 2 million - http://www.gamasutra.com/php-bin/news_index.php?story=5696
2005-07-21: 3.5 million - http://www.gamasutra.com/php-bin/news_index.php?story=5989
2005-08-29: 4 million - http://www.gamasutra.com/php-bin/news_index.php?story=7055
2005-11-09: 4.5 million - http://www.gamasutra.com/php-bin/news_index.php?story=7126
2005-12-19: 5 million - http://www.gamasutra.com/php-bin/news_index.php?story=7563
2006-01-28: 5.5 million - http://www.gamasutra.com/php-bin/news_index.php?story=7844
2006-03-02: 6 million - http://www.gamasutra.com/php-bin/news_index.php?story=8352
2006-05-10: 6.5 million - http://eu.blizzard.com/en/press/060510.html
2006-09-07: 7 million - http://www.joystiq.com/2006/09/07/world-of-warcraft-hits-7-million-su...
2006-11-09: 7.5 million - http://www.dmwmedia.com/news/2006/11/09/world-of-warcraft-subs-hit-7-5-million-e
xpansion-due-jan-16
2007-01-11: 8 million - http://www.gamasutra.com/php-bin/news_index.php?story=12371
2007-03-07: 8.5 million - http://www.computerandvideogames.com/article.php?id=159422
2007-07-24: 9 million - http://www.gamasutra.com/php-bin/news_index.php?story=14811
2007-11-14: 9.3 million - http://www.gamasutra.com/php-bin/news_index.php?story=16250
2008-01-22: 10 million - http://www.gamasutra.com/php-bin/news_index.php?story=17062
2008-07-25: 10.9 million - http://www.gamasutra.com/php-bin/news_index.php?story=19574
2008-10-28: 11 million - http://www.blizzard.com/us/press/081028.html
2008-12-23: 11.5 million - http://www.gamasutra.com/php-bin/news_index.php?story=21654
Here is the amount of days that needed for each step, how much the increase was and the average (rounded) of new subscribers per day:
2004 (average of 13,000 new players per day, 1.5m during the year)
0 -> 114 days -> 1.5 million (+1.5m, 13,000/d)
2005 (average of 15,250 new players per day, 4m during the year)
1.5 million -> 90 days -> 2 million (+500k, 5,000/d)
2 million -> 36 days -> 3.5 million (+1.5m, 41,500/d)
3.5 million -> 39 days -> 4 million (+500k, 13,000/d)
4 million -> 72 days -> 4.5 million (+500k, 7,000/d)
4.5 million -> 40 days -> 5 million (+500k, 12,500/d)
5 million -> 40 days -> 5.5 million (+500k, 12,500/d)
2006 (average of 8,400 new players per day, 2.5m during the year)
5.5 million -> 33 days -> 6 million (+500k, 15,000/d)
6 million -> 69 days -> 6.5 million (+500k, 7,000/d)
6.5 million -> 120 days -> 7 million (+500k, 4,000/d)
7 million -> 63 days -> 7.5 million (+500k, 8,000/d)
7.5 million -> 63 days -> 8 million (+500k, 8,000/d)
2007 (average of 6,125 new players per day, 2m during the year)
8 million -> 55 days -> 8.5 million (+500k, 9,000/d, release of Burning Crusade)
8.5 million -> 139 days -> 9 million (+500k, 3,500/d)
9 million -> 113 days -> 9.3 million (+300k, 2,000/d)
9.3 million -> 69 days -> 10 million (+700k, 10,000/d)
2008 (average of 4,600 new players per day, 1.5m during the year)
10 million -> 185 days -> 10.9 million (+900k, 4,000/d)
10.9 million -> 95 days -> 11 million (+100k, 1,000/d)
11 million -> 56 days -> 11.5 million (+500k, 9,000/d, release of Wrath of the Lich King)
Note that since 2005 the amount of new subscribers per day has been decreasing from 15,250 per day to 4,600 per day. It is still a very high number, but it demonstrates a clear slowdown. Three things: I have rounded months, and moved the amounts a bit (for example, the first press release states the game sold 1.5m in 114 days, or 4 months, but I accumulated everything for the 2004. The other years do something similar, but the error is not as important as the first year). Second, the amount of updates about current subscribers has been decreasing (6 in 2005, 5 in 2006, 4 in 2007 and 3 in 2008). The third is that both expansions increased the amount of subscribers for the timeframe to around the same number.
This is not a very exhaustive analysis, it just took me a couple of hours of Google, using a date calculator, a common calculator and writing. But it is clear that the popularity of World of Warcraft is slowing down. If everything were linear, 2009 would increase 1m subscribers, and 2010 just 500k, making 13m the maximum amount of subscribers the MMORPG can hope to achieve, after which it would stop growing and start decreasing. Blizzard noticed this trend, and will likely launch a new MMORPG for 2010, which I consider is the last year World of Warcraft will show increment of the player base. If so, it is brilliant: the players that start leaving World of Warcraft will be able to switch to another, brand new MMORPG. In other words, they would just be "upgrading" players from an old game to a new one, keeping a good part of the install base.
Very simple analysis: there is income for years to come, but don't be surprised if it starts decreasing soon if the overall trend is not inverted.
To this post, I would add that we haven't had any update in amount of subscribers, and we are already in April, around 100 days since the last update. 2008 had a jump of 180 or so days without an update, so it wouldn't surprise me if we don't see any new update in a few months more. Expecting a million growth for this year (if this trend continues) there may be one update in July/August, and another by year's end or at the start of 2010. The subscriber growth has been slowing down since the launch of the game, not sure if Screen Digest realized that.
http://finance.google.com/group/google.finance.353353/browse_thread/thread/83a8c
14f308ace05/0388a74a6afa37ee
While not the first MMORPG, not even the first successful one, books will be written about World of Warcraft in ten years, and no time better than now to analyze its impact.